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FAQ

Have questions? Check out our FAQ section for helpful loan related information.

What is Equity?
Equity is the difference between the market value of your home and the amount that you owe your lender. To calculate how much equity you have, simply deduct your loan balance from the estimated value of your home.
The Loan to Value Ratio (LVR) is the percentage of the property value that you’re borrowing. For example, if your property is valued at $500,000, and you are borrowing $400,000 your LVR would be $400,000/$500,000 = 80%
Lender’s Mortgage Insurance (“LMI”) protects the lender if you are to default on your home loan, and the proceeds from the sale of the property are not enough to cover the outstanding balance of the loan. In most cases LMI is only required on homeloans.com.au Low Rate Home Loans when your Loan to Value Ratio (LVR) is over 80%, however some locations and property types attract LMI when the LVR is over 70%. Your Lending Specialist advise you of the LVR requirements for your area and property type. Note that on our Options and Flex loans, although LMI isn’t required (meaning your application won’t need to satisfy the criteria of a mortgage insurance provider), a risk fee is payable. Speak to your Lending Specialist for more information about risk fees.
If you are applying for a loan with a LVR above 80% and involving LMI then you may be required to show evidence of at least 5% genuine savings. This 5% genuine savings must be save or accumulated over a 3 month period and can be in the form of:
  • Personal savings account
  • Term deposits
  • Sale of real estate
  • Sales of shares previously held
  • Equity from existing property
  • Inheritances
  • In some cases rental history (usually 6 months minimum) from property manager for current residence that you rent
Gifted funds can be used either toward the deposit and/or funds to complete your purchase. However they cannot be considered as genuine savings Generally you will need to obtain a Statutory Declaration from the family member providing the gift, which includes the full name of the person receiving the gift, amount of the gift and confirming the gift is non repayable. Majority of lenders will also require evidence that this gift is in your personal bank account
Borrowing capacity is a calculation used by the lender to assess how much you can borrow for a home loan. Lenders typically use a standardised expenses system called ‘HEM’, or household expenditure measure. The HEM accounts for a range of things such as the borrower’s location, number of dependents, and their lifestyle standard (student, basic, moderate or lavish). On top of that, lenders also take a look at your debts, such as whether you have outstanding credit card debt, or a personal loan debt, as well as car loans and other loans. They will also assess your job status – full time, part time, contract and so on. With all that in mind, your lender will then give you a figure
In addition to how much savings you have to contribute to your purchase, your borrowing capacity is another important consideration when buying a home, investment property or refinancing. Your borrowing capacity will vary from lender to lender and it is possible to improve your capacity so you can broaden your property options. Here are some ways you can increase your borrowing capacity:
  • We will check your credit score- this is to ensure you are in a financially healthy position and there are no “nasty” surprises or issues with your credit history
  • Reducing/closing unnecessary liabilities- debts such as credit cards, pay day loans, store credit such as afterpay/zippay, personal loans can significantly impact and reduce your borrowing power. Where possible close off these accounts prior to applying for a home. We can assist with strategies to achieve these results
  • Review your budget- the lender will review and consider your monthly spending habits and expenses. Where possible reduce your spending on non essential items such as takeaway, dining out, entertainment general shopping. Also review your regular expenses such as utilities, phone, insurances and see if you can get a better deal in the market. Part of our service is to review your banking history over the last 3 months and provide you with guidance to effectively increase your borrowing capacity
  • Being up to date with all your financial matters- Have your income tax returns completed for the relevant year and other relevant financial information as directed by us
  • Save a larger deposit – lenders look favourably on an applicant that has consistently saved. It show the lender that in addition to your current financial commitments you can also make regular contributions to what will ultimately be your mortgage payments.
You’ve probably heard the term ‘responsible lending’ in the news quite a bit recently. Brokers certainly should be using the term in their communication with you. Responsible lending laws were introduced in 2009, after the Global Financial Crisis. The obligations mean lenders/Brokers must undertake a series of checks before handing out credit or a loan to prevent people accessing money they can’t afford to pay back. In essence the regulation is designed to ensure that lenders/brokers do not suggest or encourage consumers to enter into credit arrangements that would be unsuitable for them given their financial situation, requirements or objectives.
The repayment on your mortgage will always include the interest payable on the amount borrowed, no matter what kind of loan you have. If you have a Principal & Interest loan (P&I), part of your repayment will also be allocated to reducing the balance of the loan. With an Interest Only loan (IO), your repayments only pay the interest that is due and do not reduce the balance (or the amount you borrowed). As a result, an IO loan can only be obtained for a limited period (usually up to five years). At the end of the IO period, the loan will automatically convert to a P&I loan unless you make an application to extend the IO period.
IO home loans are not designed for every type of borrower. For example, they are not recommended for standard owner- occupied home buyers. In this scenario, the less you pay off the principal amount, the more you end up paying in interest over the life of your loan. Your repayments are likely to be a lot higher as well, so there are very little benefits to an IO loan for owner-occupier home buyers. However, IO loans can be very useful for property investors— that’s because the interest on a loan for a property investment is usually tax deductible. In this scenario, an IO loan can help an investor to arrange their finances to maximise their investment strategy, tax advantages and cash-flow. Speak with us to find out more
A variable rate home loan is a type of loan where the interest rate may go up or down with over the life of the loan. When this happens, your monthly repayments will also change in accordance with the rate movement This rate change can be a result of many factors, including lender market position, the reserve bank’s official cash rate and the economy as a whole. A fixed interest rate home loan is guaranteed not to change for the length of time you have agreed to fix it for – typically anywhere from 1 to 5 years. At the end of your fixed term, you can choose to re-fix your loan at the new offered rates or roll onto a variable rate loan. If you want more freedom, flexibility and are comfortable with occasional movement of interest rates, a variable mortgage may be the way to go. Alternatively, if you need the ability to set a budget and make mortgage repayments of a consistent amount, a fixed home loan may be the superior choice. Both loan types have their pros and cons, and what is right for one borrower may not necessarily be the best option for another.
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